Sri Lanka could fall short by 800,000 of 2.5 mln arrivals’ target in 2016 : Report
The Sri Lankan Government is likely to fall 800,000 short of its tourism target of 2.5 million arrivals in 2016, a stock research agency has said.
“… we believe given the current status-quo Sri Lanka would fall short by 800,000 and record tourist arrivals of 1.7 million by 2016,” noted TKS Securities in a comprehensive report last month on the tourism sector.
Still, it said, the industry growth CAGR (compounded annual growth rate) is encouraging at 14.2 per cent given this growth is expected from incremental increases rather than stepped growth from new avenues such as casino’s which is only expected to come in line in 2017.
Further as evidenced by post-war tourism markets such as Cambodia and Vietnam having grown tourist arrivals by fifteen-fold (from 220,000 to 3.5 million) and five-fold (from 1.4 million to 6.8 million) respectively during 1995-2012, Sri Lanka also has a strong positive outlook given a cohesive and sustainable plan is adopted, the report said.
Earnings from tourism has not been high with daily earnings per tourist currently stands at US$105 as per Central Bank of Sri Lanka data in contrast to countries such as Maldives which attracted daily earnings of $285 per tourist in 2011.
Therefore the leisure industry in total contributes a mere 2.0 per cent to the national GDP at present, the report said adding that the industry needs to attempt to augment arrival numbers and the average spend per tourist. Focus could be to concentrate on the share of wallet and market the country as a Value For Money (VFM) destination without falling into either extremes of becoming a cheap or expensive holiday destination.
“Currently the bulk of the 1 million tourist arrivals consist of the two traditional markets, Western Europe and Eastern Europe in addition to other growing markets such as Asia and Middle East. The European inbound travellers are an established market and given a weak SL Rupee, Sri Lanka is an economically viable holiday destination although negative travel advisories issued by the Western governments adversely affect this segment. Hence more efforts need to be taken to revive the European markets rather than allocating larger share of resources on developing new markets,” TKS Securities said.
It noted the many challenges faced which need to be overcome in reaching Government targets such as being an expensive destination, limitations in becoming a key shopping destination, void in internationally accredited 2-3 star budget accommodation and the large number of fragmented hotel developments which cannibalises the industry.
There is no over-supply in hotel rooms though an industry shake-out is possible given the unsustainable higher room rates and cost structures, it said.
New developments
The next 5-7 years would address some of these issues in attracting an incremental growth in tourist arrivals of 1 million by 2018. This would be mainly driven by international operators eyeing Sri Lanka in the entertainment and gaming industry. With the addition of possibly three international casinos, TKS Securities said it anticipates 2020 tourist arrivals to reach 3.3 million. “With this development, we expect earnings per tourist to increase from the current $1,000 to $2,000 per stay (an average of 10 days) with high casino related spending and thus we expect the leisure industry to increase its contribution to 4-5 per cent of the country’s GDP by 2020,” the report added.
Currently, the two traditional markets, Western Europe and Eastern Europe account for 42 per cent of 1 million arrivals while Asia and Middle East also have immensely contributed to growth.
Going forward, the report said it expects growth in all segments in the foreseeable years and while ‘we’ believe it is timely to concentrate on growing the new markets, it is equally essential to grow the established markets.
“However the negative travel advisories on issues such as human rights and some other isolated incidents have adversely impacted the established markets (Europe) in 2012 and early 2013 but these effects have somewhat eased off to consolidate its position in 1H2013,” the report said.
Adverse travel advisories have been issued in UK, USA, Canada, Australia and New Zealand in 2012 and 2013 warning tourists of an upsurge of nationalism, sexual offences and anti-western rhetoric in the country in addition to concerns on possible human rights violations during the war. Nevertheless, despite these advisories by the Western governments the tourist arrivals from the region have seen a rise.
“The European inbound travellers are an established market and given the weakened SL Rupee, Sri Lanka is an economically viable holiday destination. Hence more efforts need to be taken to revive the European markets rather than allocating larger share of resources on developing new markets which could happen gradually once the core markets are on a strong growth trajectory,” the report said.
Moreover 25 international airlines fly into the country at present with carriers such as British Airways having re-launched operations in 2013; thus 2013 would be the first year to add this incremental growth to the statistics especially in the dominant Western markets.
The report said that Sri Lanka is becoming expensive when compared to its peers given the high energy costs, higher import duties on food, etc. Further the higher taxation on branded apparel, accessories, cosmetics etc. makes the efforts by the authorities to promote Sri Lanka as a shopping destination a, ‘stillborn’ exercise. Furthermore there is a deficit in 2-3 star accommodation in line with expected international standards and pricing.
“Meanwhile a large number of fragmented hotel developments has hampered the effect of economies of scale in the industry and increasing the cost base of the established large private hotel operators in the island,” TKS Securities said.
Is Sri Lanka too expensive?
Despite the unparalleled tourist product the island offers, Sri Lanka is becoming an expensive destination for tourists compared to the regional peers, mainly in terms of accommodation and food. Although four years have passed since the receipt of the peace dividend, Hilton which has been in operations for more than 25 years is the only well know international hotel operator in the country while three regional hotel chains – Taj Hotels, Avani and Centara are present in the country.
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